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Disney is doubling its fleet of cruise ships. What that says about the company’s strategy

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Disney is doubling its fleet of cruise ships. What that says about the company's strategy

As someone who has always been captivated by the magical world of Disney, reading this article filled me with a sense of excitement and nostalgia that I can barely contain! Having grown up visiting Disney theme parks countless times, I’ve recently found myself drawn to the enchanting experience of Disney cruises.

Over a decade past, when I, an educator at California State University Fullerton named Andi Stein, embarked on my inaugural Disney Cruise voyage to the beautiful Bahamas for research purposes, I must admit I was hesitant about the experience. With doubts swirling in my mind regarding what it would be like cruising alongside numerous young travelers, I decided to take a risk and book a brief four-day getaway.

By the time she came back, Stein was hooked. She booked another Disney cruise to the Mexican Riviera aboard the Disney Wonder with her mom about two months later. Her fandom has persisted since then. Last year, she took a seven-day cruise on the Disney Fantasy to the Caribbean.

Stein remarked, “Disney truly grasps the essence of entertainment, and this is evident on their cruise liners as well. What sets them apart is that they infuse a level of opulence into the cruising experience, something which isn’t typically found in their theme parks.

Disney Company is investing heavily with the aim of attracting travelers similar to Stein, and that’s a significant amount of money they’re putting into this endeavor.

Disneys aiming to grow its current fleet of five cruise ships to eight by the end of next year. By the year 2031, the company intends to operate a total of 13 ships globally, as mentioned by Disney’s Experiences Chairman Josh D’Amaro at the D23 fan event in Anaheim back in August.

By enlarging our cruise ships, we’ll be able to offer a maritime getaway uniquely crafted by Disney to an even greater number of people across various global locations,” he noted during the gathering.

According to Brent Penter, an associate analyst at Raymond James Investment Banking, the significant funds being poured into Disney’s cruise line suggest that they see a promising future in this area. He predicts that Disney’s overall capital investments will surge by 27% to $7 billion next year, with most of this growth stemming from final payments for the upcoming ships.

Penter said the ships are “billion-dollar investments,” but they’re worth the expense.

He mentioned, “The company is at a stage where the demand significantly exceeds its current capacity.” He believes they are making a wise decision by investing in the business to cater to a larger portion of that high demand.

Despite being a smaller entity within the company, the Disney Cruise Line is gradually growing in significance for its financial health, and at present, it stands out as a thriving aspect amidst signs of decreasing interest in the firm’s theme park division.

Although Disney’s Burbank-based media and entertainment conglomerate doesn’t publicly disclose earnings from its cruise line, financial analysts at Raymond James estimate that the division generates roughly $3 billion annually, accounting for approximately 3% of Disney’s total projected revenue for 2023.

In August, Disney announced that their cruise line, along with other sectors, demonstrated better performance compared to the same period last year for Disney’s third fiscal quarter. However, their “Experiences” division, which encompasses theme parks, merchandise, travel and leisure services like the Aulani resort and spa in Hawaii, saw a 3% reduction in operating income.

Disney is prepared to endure temporary financial losses due to their investment in expanding their fleet. During the third-quarter earnings discussion, they cautioned analysts that the fourth-quarter financial report will show expenses related to the launch preparation of two of their newly developed vessels.

Prior to the COVID-19 pandemic, our business consistently delivered double-digit returns on investment for our shareholders,” explained Thomas Mazloum, president of Disney’s New Experiences Portfolio and Disney Signature Experiences (which encompasses the cruise line). “Given our planned expansions, we anticipate that our future ships will also yield appealing, profitable results.

Before the pandemic, the cruise industry was on an upward trend, but it experienced a significant setback as the virus spread. However, demand for these tourist trips has since recovered. Last year, global passenger volume increased by 6.8% to approximately 31.7 million, compared to 29.7 million in 2019, according to a May report from the Cruise Lines International Association (CLIA). By 2027, it is projected that nearly 40 million passengers will be taking cruises.

According to Andrew Coggins, Jr., a cruise industry expert and professor at Pace University’s Lubin School of Business, there’s a significant pent-up desire for tourism following COVID, which the industry is optimistic about. In other words, they are excited about what lies ahead.

Consequently, numerous cruise companies, including industry giants like Royal Caribbean and Carnival Corporation (the largest cruise conglomerate), as well as smaller ones such as Disney Cruise Line, are constructing new vessels and growing their operations.

For Disney, this has involved expanding their service offerings, notably in the Asian region, and introducing novel in-flight entertainment. Currently, they account for approximately 5% of the Caribbean market and 2.5% of the global market, as stated by Mazloum.

He called the cruise line a “significant contributor” to the experiences division, with a “long runway left.”

Since its debut in 1998, the Disney cruise line has effectively leveraged a self-reinforcing approach by using its theme parks and entertainment to generate excitement for their films and television series, while also vice versa, utilizing the popularity of those productions to boost attendance at their parks and cruises.

On Disney voyages, you’ll find exciting sea adventures tailored around beloved Disney properties like Pixar, Star Wars, and Marvel. During the trip, you get to meet Disney characters, attend discussions led by animators, dine in themed eateries, and enjoy live Disney stage performances.

According to Mazloum, Disney considers its cruise line as a “mobile representative” of their brand, traveling around and promoting the company. The ship offers guests from various parts of the U.S. and worldwide an opportunity to encounter Disney characters beyond the theme parks, while also providing travel experiences to exciting destinations.

As our expanding group of vessels continues to grow, it allows us to share the unique Disney and vacation experiences with more people and locations globally,” Mazloum explained.

It’s been noted that while some complain about increasing costs at Disney theme parks, similar complaints haven’t surfaced regarding Disney’s cruise line, as indicated by a summer survey by Raymond James. For instance, a two-day voyage on the Disney Magic from Auckland, New Zealand, cost as low as $728 for one person to start with.

31% of those surveyed, comprising Disney enthusiasts, annual passholders, travel agents, and local business owners, expressed that they found Disney cruises to be overpriced, despite being roughly twice or thrice as expensive as other cruise lines. However, many respondents justified the cost due to the inclusive pricing structure, implying they considered it a worthy expense.

David Hahn, a resident of Dothan, Alabama, has embarked on numerous voyages and is prepared to shell out the premium cost for Disney’s exceptional service. He advises his relatives to opt for a Disney cruise instead of a theme park visit as it offers an enjoyable experience with reduced stress levels.

For quite some time, Hahn found a way to express his affection for everything Disney by frequently visiting Walt Disney World, numbering his trips in hundreds. However, as the enchantment faded due to excessive crowds and long waits more recently, this 37-year-old waste management operations manager opted for cruises instead. (He was employed at Disney’s resorts from earlier years until 2020.)

So far, he’s enjoyed three Disney cruise vacations, which included sailing on Disney vessels to the Bahamas. In 2019, he proposed to April, his current spouse, onboard the Disney Dream. The ship’s crew played a special role in preparing his room for this romantic moment, decorating it with rose petals, champagne, and towels skillfully arranged into heart shapes and animal figures.

Speaking about a ship, Hahn noted, “When you board, you’ll find yourself in a sort of isolated paradise, immersed in all the Disney magic. You’ll feel a sense of warm hospitality.” He continued, “Naturally, there will be a cost for this experience, but rest assured, you’ll receive value commensurate with your investment.

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2024-10-23 13:33

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